Mortgage Rates

CU Economist Says Rising COVID Issues Pushing Down Curiosity Charges

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The latest report from the CUNA Mutual Group said lower interest rates are being driven by market expectations that it will take Americans longer to achieve herd immunity to COVID-19 than previously expected.

In February, CUNA and the CUNA Mutual Group forecast that the 10-year treasury rate would increase from 0.90% in the fourth quarter of 2020 to 1.50% in this year’s fourth quarter. In the April forecast, the estimate was raised to 2% by the fourth quarter of this year. His June forecast showed no change.

CUNA Mutual Group’s Credit Union Trends Report, released Tuesday, said long-term interest rates since the 31st. It recently fell below 1.2% – a drop of more than 50 basis points in three months.

Steven Rick, chief economist for CUNA Mutual Group and author of the report, wrote that the decline in long-term rates has in turn pushed down 30-year fixed-rate mortgage rates.

Freddie Mac showed that the 30-year fixed rate was 2.65% at the start of the year. It rose to a high of 3.18% for the week ending April 1 that year, before falling to 2.78% in the week ending July 22.

“Don’t be surprised if 10-year treasury rates stay below 2% and mortgage rates stay below 3.25% for the remainder of the year,” wrote Rick. “Falling interest rates will prolong the mortgage refinancing boom that has benefited many credit unions over the past year.”

Higher-than-expected refinancing prompted the Mortgage Bankers Association on July 21 to raise its total tender forecast for the full 12 months of this year by 3.1% from its June 18 forecast. It said it now expects $ 3.57 trillion in first home mortgages this year, up 6.6% from 2020. It started the year down 24%.

Rick wrote that trends in the bond markets show that many investors believe that the recent high inflation will only be temporary and that inflation will return to the Federal Reserve’s long-term average of 2% if supply chain disruptions are resolved become. Investors are more concerned that the delta variant of COVID-19 will lead to low growth and low inflation.

“Falling inflation expectations have also pushed interest rates lower in the past two months,” he wrote. “The bond market is allaying fears that the economy could overheat in the second half of the year as it looks less likely that the US will achieve herd immunity anytime soon.”

Members have benefited from lower interest rates, but the remaining mix in the credit union portfolios results in lower interest margins.

The Trends Report showed credit unions hitting $ 537.5 billion on May 31.

Total loans on May 31 were $ 1.21 trillion, up 4.5% from May 2020 and 0.8% from April. Since December, the credit union’s first mortgage loan balances have increased $ 12.9 billion, while vehicle loan balances have increased only $ 6.1 billion.

“Initial mortgage loans have accounted for the lion’s share of loan growth over the past five months,” Rick wrote.

The report showed that new auto loan balances rose 0.5% from April to May, an improvement from the 1.2% decline in May 2020. However, at a seasonally adjusted annual rate, new auto loan balances fell 1.5% in May what a series of declines extended to 23 months.

“The month of May historically marks the start of the new auto loan season, so we expected a turn in lending,” Rick wrote.

Auto loans accounted for 32.3% of loans in May, the lowest level in six years. In May, higher-interest unsecured and credit card balances accounted for 9.4% of all loan balances, the lowest in credit union history.

“This is one of the factors driving credit union asset returns to record lows this year,” he wrote.

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